RE:Pablo pour information.Tictac, lets face it, owning shares in Bombardier means you are on govt assistance. You depend on the govt for any income from your shares.
Also, the devil is in the detail...
Yes, the govt does work at its own pace and usually that means kicking the can down the road - a little money here, a little money there, tread water, rinse and repeat. Bombardier fits right in because of their general modus operandi but also because lets face it, the company is on govt assistance now...due to COVID19 true but also because they had no "marge de manoeuvre" - what does BBD's cash balance look like without the money CDPQ injected into BT in Q1 (late Q1 probably) which also probably allowed them to tap the BT credit line? Not pretty, certainly less than $2B... Even Q2 depends on Mitsubishi closing...
But Bombardier is a commercial company that competes with other companies (albeit mostly subsidized from military contracts), it MUST operate like a business, not like a crown corporation or government enterprise. When it depends on the government, it becomes like the government and eventually, it won't be able to compete.
The way I see it, the proper way to render them assistance is to help them get to the point where they dont need assistance and by they we mean Bombardier Aerospace (BA). Not to look at today's problem but look at where they want the company to be in a year (or less) and work their way back from there. It means they must have a solid business model, with a low break even point and reasonable, affordable debt. That means (according to Pablo):
- probably long term debt cannot exceed $4B @3% interest 5 years (Suncor terms on their recent 5 year deal, they also did a 10 year deal on similar terms as Boeing wink wink).
- probably $1B cash on hand + $1B credit line.
- This would NOT be a stellar balance sheet by any stretch. It would simply be an acceptable one.
- the break even point much lower than now - perhaps as low as $4B revenue. Which means layoffs. The FAL is in Ontario, Quebec can start there with respect to jobs...If Ottawa chips in thru one of their programs, then that's a reasonable trade off (and the most cost effective one).
- Then the company looks normal.
- Based on the EV of General Dynamics, it would seem reasonable to assign an EV for BA of US$7B. Minus the debt, that means $3B for shareholders. Shares are at $750M now. So there is upside there. There is also room to raise equity...
- The family wants to maintain control and the govt wants them to (as they do not want to control it themselves no do they want it to fall in other hands), if they do not have the money to inject more funds in A shares, then the govt may do so and have a shareholder agmt with the family. As long as they maintain control, does it make any difference if they own 5%, 8% or 13%?
- IF they raise $2B equity and borrow $4B, BA has a clean slate unfortunately we current shareholders (I sold most of mine, still have prefs) upside is now vastly limited as we've been heavily diluted. But Bombardier Aerospace can more forward.
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- $5B of that ($1B needed for cash on hand) can be used to pay back long term debt, leaving $4.3B more or less of debt for whats left behind. So what's left?
- 64% of BT or $3B or so from Alstom, $2.1B cash on hand, $500M from Mitsubishi, Belfast or $500M, so $6.1B incoming (potentially).
- Correction: the company said they will consume another $1.5B in Q2 which means the cash on hand + potential incoming will only be $4.6B.
- That potential $4.6B incoming will be slowly but surely frittered away by $175M of interest costs every quarter, employee severance and debt restructuring penalties. The remaining debt will still be $4.3B. Thus the need to move fast...
- there is still the potential of course of buying back the debt for less than par thru open market purchases or debt negotiations. This is actually where most of the shareholder upside resides at the moment IMO. There are no other miracles left - no more assets to be sold for a pretty penny no more high falutin upside from C series - nada.
So you can see how precarious the company situation is. They need at least $6B in BA in order to have a sound balance sheet and even that may not be enough...
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Tbh, this analysis is very superficial and incomplete because we shareholders are in the dark They only have BA and BT left (all else is assets held for sale), they should really be providing more detail on how each operation is doing, including complete balance sheets for each, income statements, etc..
I have assumed based on the EBITDA that BT's cash needs are because of treasury fluctuations (receivables didn't come in, inventory didn't get sold) so the situation may not be quite as dire as stated above but we should also keep in mind that they always push hard in Q4 to get as much cash in. What if Q1 (or Q2) is really the normal balance sheet?
I still call into question the sale of BT to Alstom. If BT was restructured as I proposed above for BA, they'd have $4B debt. Assuming 3% interest, their annual interest payments would be $120M. Well seems to me they could easily cover that with $9B in sales on 6% EBIT (Alstom's was 7.7%) even after giving away 1/3 to CDPQ. The problem with selling BT now at the price it is being sold at is the hole at Bombardier is too deep, it actually makes the company situation even more dire in the sense of having too much debt left over for BA to properly service. This is what happened at a company called PGF - they sold so many assets (at prevailing market price) but lost a lot of income in the process and eventually the remaining assets could not service the remaining debt adequately. Otherwise, the deal is fine save for the timeline.
There are other ways of solving Bombardier's debt problem partially. They could sell BT immediately. They could borrow a big sum from govt and buy back the debt. But individually those 2 actions dont solve the problem entirely - BA's balance sheet would still look like heck going forward. The two actions combined might do it but likely fall short (because of the on-going cash burn due to interest and reduced sales). They could negotiate with bondholders and offer new paper at 3-4% plus shares plus haircut - this is the same upside avenue as buying bonds for less than par and in all honesty, probably the best bet short term.
Bottom line, its a mess for investors IMO and our upside is 100% dependent on govt assistance. Doesn't mean the shares don't go up on any kind of news but is that investing or gambling? You be the judge.